MANITOWOC FOODSERVICE, INC., 10-K filed on 2/24/2017
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Feb. 17, 2017
Jun. 30, 2016
Document and entity information
 
 
 
Entity Registrant Name
Manitowoc Foodservice, Inc. 
 
 
Entity Central Index Key
0001650962 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well Known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 2,417.2 
Entity Common Stock, Shares Outstanding
 
138,661,654 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Statements of Operations (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Mar. 31, 2015
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Income Statement [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Net sales
$ 378.7 
$ 384.0 
$ 368.4 
$ 325.5 
$ 391.7 
$ 425.3 
$ 407.7 
$ 345.4 
$ 1,456.6 
$ 1,570.1 
$ 1,581.3 
Cost of sales
 
 
 
 
 
 
 
 
923.8 
1,068.4 
1,073.3 
Gross profit
138.5 
142.0 
134.7 
117.6 
132.9 
135.3 
126.9 
106.6 
532.8 
501.7 
508.0 
Costs and Expenses [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
 
 
 
 
 
 
 
290.1 
291.6 
299.6 
Amortization expense
 
 
 
 
 
 
 
 
31.2 
31.4 
31.8 
Separation expense
 
 
 
 
 
 
 
 
6.5 
5.2 
0.4 
Restructuring expense
 
 
 
 
 
 
 
 
2.5 
4.6 
2.6 
Asset impairment expense
 
 
 
 
 
 
 
 
3.3 
9.0 
1.1 
Earnings from operations
 
 
 
 
 
 
 
 
199.2 
159.9 
172.5 
Interest expense
 
 
 
 
 
 
 
 
85.2 
1.4 
1.3 
Interest expense (income) on notes with MTW — net
 
 
 
 
 
 
 
 
0.1 
(15.8)
(16.6)
Other expense (income) — net
 
 
 
 
 
 
 
 
9.1 
(22.1)
2.1 
Earnings before income taxes
 
 
 
 
 
 
 
 
104.8 
196.4 
185.7 
Income taxes
 
 
 
 
 
 
 
 
25.3 
39.3 
25.9 
Net earnings
 
 
 
 
 
 
 
 
$ 79.5 
$ 157.1 
$ 159.8 
Per share data
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share (in dollars per share)
$ 0.15 
$ 0.18 
$ 0.11 
$ 0.13 
$ 0.48 
$ 0.30 
$ 0.27 
$ 0.10 
$ 0.58 
$ 1.15 
$ 1.17 
Diluted earnings per common share (in dollars per share)
 
 
 
 
 
 
 
 
$ 0.57 
$ 1.15 
$ 1.17 
Basic weighted average common shares outstanding (in shares)
 
 
 
 
 
 
 
 
137,906,284 
137,016,712 
137,016,712 
Diluted weighted average common shares outstanding (in shares)
 
 
 
 
 
 
 
 
139,714,120 
137,016,712 
137,016,712 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
Net earnings
$ 79.5 
$ 157.1 
$ 159.8 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
(1.9)
(25.2)
(16.9)
Unrealized gain (loss) on derivatives, net of income tax (expense) benefit of ($1.0), $0.5 and $0.2, respectively
2.6 
(0.8)
(0.6)
Employee pension and post-retirement benefits, net of income tax (expense) benefit of ($0.6), $0.0 and $0.3, respectively
0.4 
2.2 
(4.4)
Total other comprehensive income (loss), net of tax
1.1 
(23.8)
(21.9)
Comprehensive income
$ 80.6 
$ 133.3 
$ 137.9 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
Unrealized (loss) income on derivatives, net of income taxes of
$ 2.6 
$ (0.8)
$ (0.6)
Employee pension and post retirement benefits, income taxes
$ (0.4)
$ (2.2)
$ 4.4 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Current Assets:
 
 
Cash and cash equivalents
$ 53.8 
$ 32.0 
Restricted cash
6.4 
0.6 
Accounts receivable, less allowances of $5.3 and $4.0, respectively
81.7 
63.8 
Inventories — net
145.6 
145.9 
Prepaids and other current assets
13.9 
10.3 
Current assets held for sale
6.8 
Total current assets
308.2 
252.6 
Property, plant and equipment — net
109.1 
116.4 
Goodwill
845.3 
845.8 
Other intangible assets — net
484.4 
519.6 
Other non-current assets
22.1 
15.9 
Long-term assets held for sale
3.7 
Total assets
1,769.1 
1,754.0 
Current Liabilities:
 
 
Accounts payable
108.4 
121.7 
Accrued expenses and other liabilities
174.5 
164.9 
Current portion of capital leases
1.6 
0.4 
Product warranties
27.9 
34.3 
Current liabilities held for sale
0.7 
Total current liabilities
313.1 
321.3 
Non-Current Liabilities:
 
 
Long-term debt and capital leases
1,278.7 
2.3 
Deferred income taxes
137.8 
167.9 
Pension and postretirement health obligations
47.4 
33.3 
Other long-term liabilities
35.6 
20.5 
Total non-current liabilities
1,499.5 
224.0 
Commitments and contingencies (note 17)
   
   
Total (deficit) equity:
 
 
Common stock (300,000,000 shares and 0 shares authorized, 138,601,327 shares and 0 shares issued and 138,562,016 shares and 0 shares outstanding, respectively)
1.4 
Additional paid-in capital (deficit)
(72.0)
Retained earnings
70.5 
Net parent company investment
1,253.2 
Accumulated other comprehensive loss
(43.4)
(44.5)
Total (deficit) equity
(43.5)
1,208.7 
Total liabilities and equity
$ 1,769.1 
$ 1,754.0 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]
 
 
Accounts Receivable, allowances (in dollars)
$ 4.2 
$ 4.2 
Common stock, shares authorized
300,000,000 
300,000,000 
Common stock, shares issued
138,601,327 
137,016,072 
Common stock, shares outstanding
138,562,016 
137,016,072 
Treasury stock, shares
39,311 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities
 
 
 
Net earnings
$ 79.5 
$ 157.1 
$ 159.8 
Adjustments to reconcile net earnings to cash provided by operating activities:
 
 
 
Depreciation
17.3 
19.6 
21.2 
Amortization expense
31.2 
31.4 
31.8 
Amortization of deferred financing fees
4.8 
Deferred income taxes
(9.9)
(30.0)
(17.5)
Stock-based compensation expense
6.3 
2.3 
2.4 
Asset impairment expense
3.3 
9.0 
1.1 
Loss on sale of property, plant and equipment
0.4 
0.9 
0.3 
Gain on acquisitions and divestitures
(14.8)
Other
1.1 
Changes in operating assets and liabilities, excluding the effects of business acquisitions or dispositions:
 
 
 
Accounts receivable
(8.3)
(7.5)
(0.3)
Inventories
(3.6)
4.7 
(23.8)
Other assets
(11.5)
1.4 
(1.3)
Accounts payable
(11.1)
(25.6)
21.2 
Other current and long-term liabilities
23.6 
(5.5)
4.2 
Net cash provided by operating activities
122.0 
143.0 
200.2 
Cash flows from investing activities
 
 
 
Capital expenditures
(16.0)
(13.2)
(25.3)
Changes in restricted cash
(6.0)
(0.6)
Business acquisitions, net of cash acquired
(5.3)
Proceeds from dispositions
1.6 
78.2 
Net cash (used for) provided by investing activities
(20.4)
59.1 
(25.3)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt and capital leases
1,501.1 
0.5 
3.1 
Repayments on long-term debt and capital leases
(186.8)
(0.7)
(3.4)
Debt issuance costs
(41.3)
Dividend paid to MTW
(1,362.0)
Net transactions with MTW
(6.1)
(182.9)
(166.7)
Exercises of stock options
16.2 
Net cash used for financing activities
(78.9)
(183.1)
(167.0)
Effect of exchange rate changes on cash
(0.9)
(3.5)
(1.0)
Net increase in cash and cash equivalents
21.8 
15.5 
6.9 
Balance at beginning of year
32.0 
16.5 
9.6 
Balance at end of year
53.8 
32.0 
16.5 
Supplemental disclosures of cash flow information:
 
 
 
Net cash paid for income taxes
42.1 
13.2 
13.2 
Cash paid for interest
$ 69.6 
$ 0 
$ 0 
Consolidated Statements of Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid-In Capital (Deficit)
Retained Earnings
Net Parent Company Investment
Accumulated Other Comprehensive (Loss) Income
Beginning balance at Dec. 31, 2013
$ 1,268.4 
$ 0 
$ 0 
$ 0 
$ 1,267.2 
$ 1.2 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Common stock, shares outstanding
 
 
 
 
 
Net earnings
159.8 
 
 
 
 
 
Other comprehensive income
(21.9)
 
 
 
 
(21.9)
Net decrease in parent company investment
(154.9)
 
 
 
(154.9)
 
Ending balance at Dec. 31, 2014
1,251.4 
1,272.1 
(20.7)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Common stock, shares outstanding
137,016,072 
 
 
 
 
Net earnings
157.1 
 
 
 
 
 
Other comprehensive income
(23.8)
 
 
 
 
(23.8)
Net decrease in parent company investment
(176.0)
 
 
 
(176.0)
 
Ending balance at Dec. 31, 2015
1,208.7 
1,253.2 
(44.5)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Common stock, shares outstanding
138,562,016 
138,601,327 
 
 
 
 
Net earnings
79.5 
 
 
64.2 
15.3 
 
Other comprehensive income
1.1 
 
 
 
 
1.1 
Net decrease in parent company investment
(1,362.0)
 
 
 
(1,362.0)
 
Separation related adjustments
(1.0)
 
 
 
(1.0)
 
Reclassification of net investment to additional paid-in capital
 
 
(94.5)
 
94.5 
 
Issuance of common stock at Spin-Off (in shares)
 
137,016,712 
 
 
 
 
Issuance of common stock at Spin-Off
 
1.4 
(1.4)
 
 
 
Issuance of common stock, equity-based compensation plans (in shares)
 
1,584,615 
 
 
 
 
Issuance of common stock, equity-based compensation plans
16.2 
 
16.2 
 
 
 
Stock-based compensation expense
6.3 
 
6.3 
 
 
 
Adjustments in connection with the Spin-Off
7.7 
 
1.4 
6.3 
 
 
Ending balance at Dec. 31, 2016
$ (43.5)
$ 1.4 
$ (72.0)
$ 70.5 
$ 0 
$ (43.4)
Description of the Business and Basis of Presentation
Description of the Business and Basis of Presentation
Description of the Business and Basis of Presentation
The Spin-Off
On January 29, 2015, The Manitowoc Company, Inc. ("MTW") announced plans to create two independent public companies to separately operate its two businesses: its Crane business and its Foodservice business. To effect the separation, MTW first undertook an internal reorganization, following which MTW held the Crane business, and Manitowoc Foodservice, Inc. ("MFS") held the Foodservice business. Then on March 4, 2016, MTW distributed all the MFS common stock to MTW's shareholders on a pro rata basis, and MFS became an independent publicly traded company (the "Distribution"). In this Annual Report on Form 10-K, "Spin-Off" refers to both the above described internal reorganization and the Distribution, collectively.

In these consolidated financial statements, unless the context otherwise requires:

"MFS" and the "Company" refer to Manitowoc Foodservice, Inc. and its consolidated subsidiaries, after giving effect to the internal reorganization and the Distribution, or, in the case of information as of dates or for periods prior to its separation from MTW, the combined entities of the Foodservice business, and certain other assets and liabilities that were historically held at the MTW corporate level, but were specifically identifiable and attributable to the Foodservice business; and

"MTW" refers to The Manitowoc Company, Inc. and its consolidated subsidiaries, other than, for all periods following the Spin-Off, MFS.

Description of the Business

The Company is one of the world’s leading commercial foodservice equipment companies. It designs and manufactures a complementary portfolio of hot and cold foodservice equipment products integrated under one operating company and is supported by a growing aftermarket parts and repair service business. Its capabilities span refrigeration, ice-making, cooking, holding, food-preparation and beverage-dispensing technologies, which allow it to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home. The Company's suite of products is used by commercial and institutional foodservice operators including full-service restaurants, quick-service restaurant chains, hotels, caterers, supermarkets, convenience stores, business and industry, hospitals, schools and other institutions. The Company's products and aftermarket parts and service support are recognized by its customers and channel partners for their quality, reliability and durability that enable profitable growth for MFS end customers by improving their menus, enhancing operations and reducing costs.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). All intercompany balances and transactions between the Company and its affiliates have been eliminated. Interest income and expense related to the notes with MTW have been reflected on a net basis within the accompanying consolidated statement of operations as described in Note 24, "Net Parent Company Investment and Related Party Transactions."
During the periods presented prior to the Spin-Off on March 4, 2016, the Company's financial statements were prepared on a combined standalone basis derived from the consolidated financial statements and accounting records of MTW. The Company functioned as part of the larger group of companies controlled by MTW. Accordingly, MTW performed certain corporate overhead functions for the Company. Therefore, certain costs related to the Company have been allocated from MTW for the period of January 1, 2016 up to the Spin-Off on March 4, 2016 and for the entirety of the years ended December 31, 2015 and 2014. These allocated costs are primarily related to: 1) corporate officers, 2) employee benefits and compensation, 3) share-based compensation and 4) certain administrative functions, which are not provided at the business level including, but not limited to, finance, treasury, tax, audit, legal, information technology, human resources and investor relations. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of revenue, headcount or other measures the Company determined to be reasonable.
As the separate legal entities that comprised the Company were not historically held by a single legal entity, "Net parent company investment" in the accompanying consolidated financial statements is shown in lieu of stockholder’s equity. Balances between MFS and MTW (including its Crane business) that were not historically settled in cash are included in "Net parent company investment," which represents MTW's interest in the recorded assets of MFS and the cumulative investment by MTW in MFS through the Spin-Off, inclusive of operating results.
Management of the Company believes the assumptions underlying the accompanying consolidated financial statements, including the assumptions regarding the allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by the Company during the periods presented. Nevertheless, the accompanying consolidated financial statements may not be indicative of the Company's future performance, and they do not necessarily include all of the actual expenses that would have been incurred by the Company and may not reflect the results of operations, financial position and cash flows had the Company been a standalone company during the entirety of the periods presented prior to the Spin-Off.
Prior to the Spin-Off, cash was managed centrally and flowed through centralized bank accounts controlled and maintained by MTW. Accordingly, cash and cash equivalents held by MTW at the corporate level were not attributable to MFS for any of the periods presented prior to the Spin-Off. Only cash amounts specifically attributable to MFS are reflected in the accompanying consolidated financial statements. Transfers of cash, both to and from MTW's centralized cash management system, are reflected as a component of "Net parent company investment" in the accompanying consolidated balance sheets and as a financing activity in the accompanying consolidated statements of cash flows. Additionally, none of MTW’s debt has been allocated to the consolidated financial statements as MFS has no legal obligation for any of the debt agreements. MFS received or provided funding as part of MTW's centralized treasury program.
Income tax expense in the accompanying consolidated statement of operations for the periods prior to the Spin-Off is computed on a separate return basis, as if MFS was operating as a separate consolidated group and filed separate tax returns in the jurisdictions in which it operates. As a result of potential changes to our business model and potential past and future tax planning, income tax expense included in the accompanying consolidated financial statements may not be indicative of MFS' future expected tax rate. In addition, cash tax payments and items of current and deferred taxes may not be reflective of MFS' actual tax balances prior to or subsequent to the Spin-Off.
MFS, as a stand-alone entity commencing with the Spin-Off, files US federal and state tax returns on its own behalf. The responsibility for current income tax liabilities of US federal and state combined tax filings were deemed to settle immediately with MTW paying entities effective with the Spin-Off in the respective jurisdictions, whereas state tax returns for certain separate filing MFS entities were filed by MFS for periods prior to and after the Spin-Off. Cash tax payments commencing with the Spin-Off for the estimated liability are the actual cash taxes paid to the respective tax authorities in the jurisdictions wherever applicable.

Prior to the Spin-Off, the operations of MFS were generally included in the consolidated tax returns filed by the respective MTW entities, with the related income tax expense and deferred income taxes calculated on a separate return bases in the accompanying consolidated financial statements. As a result, the effective tax rate and deferred income taxes of MFS for 2016 may differ from those in historical periods.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Significant Accounting Policies
Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation.
Cash, Cash Equivalents, and Restricted Cash All short-term investments purchased with an original maturity of three months or less are considered cash equivalents.
Inventories Inventories are valued at the lower of cost or market value.  Approximately 91.2% and 90.3% of the Company's inventories at December 31, 2016 and 2015, respectively, were valued using the first-in, first-out ("FIFO") method.  The remaining inventories were valued using the last-in, first-out ("LIFO") method. If the FIFO inventory valuation method had been used exclusively, inventories would have increased by $3.5 million and $3.4 million at December 31, 2016 and 2015, respectively.  Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Goodwill and Other Intangible Assets The Company accounts for its goodwill and other intangible assets under the guidance of Accounting Standards Codification ("ASC") Subtopic 350-10, "Intangibles — Goodwill and Other." Under ASC Subtopic 350-10, goodwill is not amortized, but it is tested for impairment annually, or more frequently, as events dictate. See additional discussion of impairment testing under "Impairment of Long-Lived Assets," below. The Company's other intangible assets with indefinite lives, including trademarks, are not amortized, but are also tested for impairment annually, or more frequently, as events dictate. The Company's other intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Other intangible assets are amortized straight-line over the following estimated useful lives:
 
Useful lives
Patents
10-20 years
Engineering drawings
15 years
Customer relationships
10-20 years

Property, Plant and Equipment Property, plant and equipment are stated at cost.  Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and improvements that substantially extend the capacity or useful life of an asset are capitalized and are then depreciated. The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in earnings. Property, plant and equipment are depreciated over the estimated useful lives of the assets using the straight-line depreciation method for financial reporting and on accelerated methods for income tax purposes. 
Property, plant and equipment are depreciated over the following estimated useful lives:
 
Years
Building and improvements
2 - 40
Machinery, equipment and tooling
2 - 20
Furniture and fixtures
3 - 15
Computer hardware and software
2 - 7

Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets’ carrying amount may not be recoverable.  The Company conducts its long-lived asset impairment analyses in accordance with ASC Subtopic 360-10-5.  ASC Subtopic 360-10-5 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and to evaluate the asset group against the sum of the undiscounted future cash flows.
For property, plant and equipment and other long-lived assets, other than goodwill and other indefinite lived intangible assets, the Company performs undiscounted operating cash flow analyses to determine impairments.  If an impairment is determined to exist, any related impairment loss is calculated based upon comparison of the fair value to the net book value of the assets.  Impairment losses on assets held for sale are based on the estimated proceeds to be received, less costs to sell.
Each year, as of June 30, the Company tests for impairment of goodwill according to a two-step approach.  In the first step, the Company estimates the fair values of its reporting units using the present value of future cash flows approach.  If the carrying amount exceeds the fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any.  In the second step, the implied fair value of the goodwill is estimated as the fair value of the reporting unit used in the first step less the fair values of all other net tangible and intangible assets of the reporting unit. If the carrying amount of the goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill.  In addition, goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.  For other indefinite lived intangible assets, the impairment test consists of a comparison of the fair value of the intangible assets to their carrying amount.  See Note 9, "Goodwill and Other Intangible Assets," for further details on the Company's impairment assessments.
Warranties Estimated warranty costs are recorded in cost of sales at the time of sale of the products based on historical warranty experience for the related product or estimates of projected costs due to specific warranty issues on new products.  These estimates are reviewed periodically and are adjusted based on changes in facts, circumstances or actual experience.
Environmental Liabilities The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable.  Such accruals are adjusted as information develops or circumstances change. 
Product Liabilities The Company records product liability reserves for its self-insured portion of any pending or threatened product liability actions.  The reserve is based upon two estimates.  First, the Company tracks the population of all outstanding pending and threatened product liability cases to determine an appropriate case reserve for each based upon the Company's best judgment and the advice of legal counsel.  These estimates are continually evaluated and adjusted based upon changes to facts and circumstances surrounding the case. Second, the Company determines the amount of additional reserve required to cover incurred but not reported product liability obligations and to account for possible adverse development of the established case reserves. This analysis is performed twice annually. 
Foreign Currency Translation The financial statements of the Company's non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the average exchange rate for the year for income and expense items.  Resulting translation adjustments are recorded to "Accumulated Other Comprehensive Income" ("AOCI") as a component of equity.
Derivative Financial Instruments and Hedging Activities The Company entered into derivative instruments to hedge foreign exchange and commodity exposure associated with aluminum, copper, steel and natural gas prices.
The Company has adopted written policies and procedures that place all financial instruments under the direction of corporate treasury and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is strictly prohibited.  The Company uses financial instruments to manage the market risk from changes in foreign exchange rates and commodities. The Company follows the guidance in accordance with ASC Subtopic 815-10, "Derivatives and Hedging." The fair values of all derivatives are recorded in the accompanying consolidated balance sheets.  The change in a derivative’s fair value is recorded each period in current earnings or AOCI depending on whether the derivative is designated and qualifies as part of a hedge transaction and if so, the type of hedge transaction. During the years ended December 31, 2016, 2015 and 2014, minimal amounts were recognized in earnings due to ineffectiveness of certain commodity hedges. The amount reported as derivative instrument fair market value adjustment in the AOCI account within the accompanying consolidated statements of comprehensive income (loss) represents the net gain (loss) on foreign currency exchange contracts and commodity contracts designated as cash flow hedges, net of income taxes.

Stock-Based Compensation MFS employees have historically participated in MTW's stock-based compensation plans for the periods prior to the Spin-Off. Stock-based compensation expense has been allocated to the MFS business based on the awards and terms previously granted to its employees. Until consummation of the Spin-Off, the MFS business continued to participate in MTW's stock-based compensation plans and record stock-based compensation expense based on the stock-based awards granted to the MFS employees. Accounting guidance requires that the cost resulting from all stock-based payment transactions be recognized in the financial statements. Guidance as establishes fair value as the measurement objective in accounting for stock-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting generally for all stock-based payment transactions with employees. Stock-based compensation expense related to MFS employees of $6.3 million, $2.3 million and $2.4 million has been recorded in the accompanying consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014, respectively. Refer to Note 16, "Stock-Based Compensation," for additional discussion regarding details of the Company's stock-based compensation plan.
Revenue Recognition Revenue is generally recognized and earned when all the following criteria are satisfied with regard to a specific transaction: persuasive evidence of a sales arrangement exists; the price is fixed or determinable; collectability of cash is reasonably assured; and delivery has occurred or services have been rendered.  Shipping and handling fees are reflected in net sales and shipping and handling costs are reflected in cost of sales in the accompanying consolidated statements of operations.
Research and Development Research and development costs are charged to expense as incurred and amounted to $35.2 million, $33.2 million and $31.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.  Research and development costs include salaries, materials, contractor fees and other administrative costs. 
Income Taxes MFS, as a stand-alone entity commencing with the Spin-Off, files U.S. federal and state tax returns on its own behalf. The responsibility for current income tax liabilities of U.S. federal and state combined tax filings were deemed to settle immediately with MTW paying entities effective with the Spin-Off in the respective jurisdictions, and such settlements were reflected as changes in the “Net parent company investment account” in the accompanying consolidated balance sheets and statements of equity. State tax returns for certain separate filing MFS entities were filed by MFS for periods prior to and after the Spin-Off. Cash tax payments commencing with the Spin-Off for the estimated liability are the actual cash taxes paid to the respective tax authorities in the jurisdictions wherever applicable.
Prior to the Spin-Off, the operations of MFS were generally included in the consolidated tax returns filed by the respective MTW entities, with the related income tax expense and deferred income taxes calculated on separate return bases in the accompanying consolidated financial statements. As a result, the effective tax rate and deferred income taxes of MFS for 2016 may differ from those in historical periods.
The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the accompanying consolidated financial statements. Deferred tax assets and liabilities are determined based on the temporary difference between financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. The Company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority.
Comprehensive Income (Loss) Comprehensive income (loss) includes, in addition to net earnings, other items that are reported as direct adjustments to equity.  Currently, these items are foreign currency translation adjustments, employee postretirement benefit adjustments and the change in fair value of certain derivative instruments.
Concentration of Credit Risk Credit extended to customers through trade accounts receivable potentially subjects MFS to risk.  This risk is limited due to the large number of customers and their dispersion across various industries and many geographical areas.  However, a significant amount of MFS' receivables are with distributors and large companies in the foodservice and beverage industry. MFS currently does not foresee a significant credit risk associated with these individual groups of receivables, but continues to monitor the exposure, if any.
Recent Accounting Changes and Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes the second step of the annual goodwill impairment test. ASU 2017-04 is effective for fiscal years, and interim periods within those fiscal years, for annual impairment tests beginning after December 15, 2019. Early adoption is permitted in any interim or annual reporting period for impairment tests performed after January 1, 2017 and the amendments in this ASU should be applied prospectively. This ASU will not have a significant impact on the Company's consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the accounting guidance to assist entities in evaluating whether a transaction should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in certain instances and the amendments in this ASU should be applied prospectively. This ASU will not have a significant impact on the Company's consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which will require an entity to reconcile the changes in restricted cash as part of total cash and cash equivalents in its statements of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period and the amendments in this ASU should be applied retrospectively. This ASU will not have a significant impact on the Company's consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies the accounting guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment award transactions. This ASU requires that all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit on the income statement. The excess tax items should be classified with other income tax cash flows as an operating activity. This ASU also allows an entity to account for forfeitures when they occur rather than the current U.S. GAAP practice where an entity makes an entity-wide accounting policy election to estimate the number of awards that are expected to vest. This ASU is effective for the Company on January 1, 2017 and the Company will continue to estimate the number of awards that are expected to vest. The adoption of this ASU will not have a significant impact on the Company's consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires lessees to recognize right-of-use assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. ASU 2016-02 requires a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and provides certain practical expedients that companies may elect. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is not permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
In August 2015, the FASB issued ASU 2015-15, "Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements." This ASU clarifies the guidance related to accounting for debt issuance costs related to line-of-credit arrangements. In April 2015, the FASB issued ASU 2015-03, "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. With the issuance of ASU 2015-15, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted ASU 2015-15 and ASU 2015-03 in the first quarter of fiscal year 2016 and its impact is presented in the accompanying consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." This ASU changes the guidance on accounting for inventory accounted for on a first-in first-out ("FIFO") basis. Under the revised standard, an entity should measure FIFO inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured on a last-in, first-out ("LIFO") basis. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016 with early application permitted. The Company believes the adoption of this ASU will not have a material impact on its consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-05, "Intangibles—Goodwill and Other—Internal-use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." This ASU provides guidance on accounting for a software license in a cloud computing arrangement. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Further, all software licenses are within the scope of Accounting Standards Codification ("ASC") Subtopic 350-40 and will be accounted for consistent with other licenses of intangible assets. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted this accounting guidance in the first quarter of fiscal year 2016. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements or related disclosures.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 820)—Amendments to the Consolidation Analysis." This ASU amends the current consolidation guidance for both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted this accounting guidance in the first quarter of fiscal year 2016. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements or related disclosures.
In January 2015, the FASB issued ASU 2015-01, "Income Statement—Extraordinary and Unusual Items." This ASU eliminates from U.S. GAAP the concept of extraordinary items. This ASU is effective for the first interim period within fiscal years beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. The Company adopted this accounting guidance in the first quarter of fiscal year 2016. The adoption of this ASU did not have a material impact on its consolidated financial statements or related disclosures.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." This update provides guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and to provide related footnote disclosures. The Company adopted this accounting guidance in the fourth quarter of fiscal year 2016. The adoption of this ASU did not have a material impact on its consolidated financial statements or related disclosures.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." This ASU provides a principles-based approach to revenue recognition to record the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU provides a five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when each performance obligation is satisfied. The revenue standard is effective for the first interim period within fiscal years beginning after December 15, 2017 (as updated by the FASB in August 2015 in ASU 2015-14 and as updated by ASU-2016-20, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12), and can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial application along with additional disclosures. Early adoption is permitted as of the original effective date—the first interim period within fiscal years beginning after December 15, 2016. The Company plans to adopt this standard on January 1, 2018 and is evaluating its customizable contracts, information technology contracts and other customer contracts that may impact its consolidated financial statements and related disclosures.
Acquisitions
Acquisitions
Acquisitions
On October 21, 2015, MFS acquired the remaining 50% of outstanding shares of a joint venture in Thailand. Welbilt Thailand is a leading manufacturer of kitchen equipment in South East Asia. The purchase price, net of cash acquired, was approximately $5.3 million. The gain of $4.9 million recognized on the acquisition was a component of "Other expense (income) — net" in the accompanying consolidated statements of operations for the year ended December 31, 2015. The gain related to the difference between the book value and the fair value of the Company's previously held passive 50% equity interest in the joint venture. Allocation of the purchase price resulted in $1.4 million of goodwill and $4.2 million of intangible assets, which related entirely to the Asia Pacific ("APAC") reportable segment. The results of Welbilt Thailand have been included in the accompanying consolidated financial statements since the date of the acquisition.
Divestitures
Divestitures
Divestitures
On December 7, 2015, the Company announced the completion of the sale of Kysor Panel Systems, a manufacturer of wood frame and high-density rail panel systems for walk-in freezers and coolers for the retail and convenience-store markets, to an affiliate of D Cubed Group LLC. The sale price for the transaction was approximately $85.0 million, with cash proceeds received of approximately $78.0 million. In December 2015, the proceeds from the sale were used to reduce outstanding debt under MTW's then-outstanding credit facility. This divestiture does not qualify for discontinued operations; therefore the results of the business are included in the operating results from continuing operations.

During the third quarter of 2014, the Company settled a pension obligation related to a previously disposed entity, which resulted in a $1.1 million loss, net of income tax benefit of $0.6 million, which is reflected in "Other expense (income) — net" in the accompanying consolidated statements of operations for the year ended December 31, 2014.

Subsequent Events
In January 2017, the Company completed the sale of a certain parts and field service business in Shanghai, China for a net purchase price of $1.1 million, with cash proceeds received of $1.1 million in December 2016. This sale relates entirely to the Company's APAC reportable segment and met the criteria to be classified as held for sale as of December 31, 2016 and thus, the related assets of $2.3 million and liabilities of $0.7 million are presented in "Current assets held for sale" and "Current liabilities held for sale" in the accompanying consolidated balance sheets, respectively. A minimal impairment charge was recognized during the year ended December 31, 2016, which is included in "Asset impairment expense" in the accompanying consolidated statements of operations.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
Fair Value of Financial Instruments
The following tables set forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2016 and 2015 by level within the fair value hierarchy.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
 
Fair Value as of December 31, 2016
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Current assets:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
0.6

 
$

 
$
0.6

Commodity contracts
 

 
0.9

 

 
0.9

Total current assets at fair value
 

 
1.5

 

 
1.5

Non-current assets:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.2

 

 
0.2

Total non-current assets at fair value
 

 
0.2

 

 
0.2

Total assets at fair value
 
$

 
$
1.7

 
$

 
$
1.7

Current liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
1.0

 
$

 
$
1.0

Commodity contracts
 

 
0.1

 

 
0.1

Total current liabilities at fair value
 

 
1.1

 

 
1.1

Total liabilities at fair value
 
$

 
$
1.1

 
$

 
$
1.1

 
 
Fair Value as of December 31, 2015
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Total assets at fair value
 
$

 
$

 
$

 
$

Current liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
0.1

 
$

 
$
0.1

Commodity contracts
 

 
3.1

 

 
3.1

Total current liabilities at fair value
 

 
3.2

 

 
3.2

Non-current liabilities:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.4

 

 
0.4

Total non-current liabilities at fair value
 

 
0.4

 

 
0.4

Total liabilities at fair value
 
$

 
$
3.6

 
$

 
$
3.6


The fair value of the Company's 9.50% Senior Notes due 2024 (the "Senior Notes") and Term Loan B Facility (as defined below) under its Senior Secured Credit Facilities (as defined below) was approximately $496.2 million and $838.4 million as of December 31, 2016, respectively. Neither the Senior Notes nor the Term Loan B Facility existed as of December 31, 2015. See Note 12, "Debt," for a description of the debt instruments and their related carrying values. Aside from the asset impairment charges discussed in Note 19, "Restructuring," no other non-recurring fair value adjustments were recorded during the years ended December 31, 2016 and 2015.
ASC Subtopic 820-10, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Subtopic 820-10 classifies the inputs used to measure fair value into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
Inputs other than quoted prices that are observable for the asset or liability
Level 3
Unobservable inputs for the asset or liability
The Company endeavors to utilize the best available information in measuring fair value. The Company estimates the fair value of its Senior Notes and Term Loan B Facility based on quoted market prices of the instruments. Because these markets are typically thinly traded, the assets and liabilities are classified as Level 2 of the fair value hierarchy. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and deferred purchase price notes on receivables sold (see Note 11, "Accounts Receivable Securitization"), approximate fair value, without being discounted as of December 31, 2016 and 2015 due to the short-term nature of these instruments.
As a result of its global operating and financing activities, the Company is exposed to market risks from changes in foreign currency exchange rates and commodity prices, which may adversely affect its operating results and financial position. When deemed appropriate, the Company minimizes these risks through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes, and the Company does not use leveraged derivative financial instruments. The foreign currency exchange and commodity contracts are valued through an independent valuation source which uses an industry standard data provider, with resulting valuations periodically validated through third-party or counterparty quotes. As such, these derivative instruments are classified within Level 2 of the fair value hierarchy.
Derivative Financial Instruments
Derivative Financial Instruments
Derivative Financial Instruments
The Company's risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized or managed using what it believes to be the most effective and efficient methods to eliminate, reduce or transfer such exposures. Operating decisions consider these associated risks and structure transactions to minimize or manage these risks whenever possible.
The use of derivative instruments is consistent with the overall business and risk management objectives of the Company. The Company uses derivative instruments to manage business risk exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as "hedging" activities as defined in its risk policy. It is the Company's policy to enter into derivative transactions only to the extent true exposures exist; the Company does not enter into derivative transactions for trading or other speculative purposes.
The primary risks the Company manages using derivative instruments are commodity price risk and foreign currency exchange risk. Swap contracts on various commodities are used to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. The Company also enters into various foreign currency derivative instruments to help manage foreign currency risk associated with its projected purchases and sales and foreign currency denominated receivable and payable balances.
ASC Subtopic 815-10, "Derivatives and Hedges," requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with ASC Subtopic 815-10, the Company designates commodity swaps and foreign currency exchange contracts as cash flow hedges of forecasted purchases of commodities and currencies.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. In the next twelve months, the Company estimates $0.4 million of unrealized gains, net of tax, related to commodity price and currency rate hedging will be reclassified from other comprehensive income (loss) into earnings. Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for 15 and 36 months, respectively, depending on the type of risk being hedged.

As of December 31, 2016, 2015 and 2014, the Company had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:
 
 
Units Hedged
 
 
 
 
Commodity
 
2016
 
2015
 
2014
 
Unit
 
Type
Aluminum
 
1,663

 
1,215

 
1,657

 
MT
 
Cash flow
Copper
 
746

 
472

 
820

 
MT
 
Cash flow
Natural gas
 
56,416

 
49,396

 
56,792

 
MMBtu
 
Cash flow
Steel
 
8,663

 
11,073

 
12,634

 
Short tons
 
Cash flow
 
 
Units Hedged
 
 
Currency
 
2016
 
2015
 
2014
 
Type
Canadian Dollar
 
26,130,000

 
587,556

 
7,984,824

 
Cash flow
European Euro
 
11,261,848

 
231,810

 

 
Cash flow
British Pound
 
4,191,763

 
113,115

 

 
Cash flow
Mexican Peso
 
148,200,000

 
28,504,800

 
52,674,383

 
Cash flow
Thailand Baht
 
23,231,639

 

 

 
Cash flow
Singapore Dollar
 
4,375,000

 

 

 
Cash flow

For derivative instruments that are not designated as hedging instruments under ASC Subtopic 815-10, the gains or losses on the derivatives are recognized in current earnings within "Other expense (income) — net" in the accompanying consolidated statements of operations. As of December 31, 2016, 2015 and 2014, the Company had the following outstanding currency forward contracts that were not designated as hedging instruments:
 
 
Units Hedged
 
 
 
 
Commodity
 
2016
 
2015
 
2014
 
Unit
 
Type
Aluminum
 
28

 

 

 
MT
 
Cash flow
Steel
 
340

 

 

 
Short tons
 
Cash flow

 
 
Units Hedged
 
 
 
 
Currency
 
2016
 
2015
 
2014
 
Recognized Location
 
Purpose
Canadian Dollar
 

 
1,117,850

 
2,516

 
Other expense (income) — net
 
Accounts payable and receivable settlement
European Euro
 
16,000,000

 

 
2,172,068

 
Other expense (income) — net
 
Accounts payable and receivable settlement
British Pound
 
8,192,692

 

 

 
Other expense (income) — net
 
Accounts payable and receivable settlement
Mexican Peso
 

 

 
3,151,000

 
Other expense (income) — net
 
Accounts payable and receivable settlement
Swiss Franc
 
3,150,000

 

 

 
Other expense (income) — net
 
Accounts payable and receivable settlement

The fair value of outstanding derivative contracts recorded as assets in the accompanying consolidated balance sheets as of December 31, 2016 and 2015 was as follows:
 
 
ASSET DERIVATIVES
(in millions)
 
Balance Sheet Location
 
Fair Value
 
 
 
 
2016
 
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaids and other current assets
 
$
0.6

 
$

Commodity contracts
 
Prepaids and other current assets
 
0.9

 

Commodity contracts
 
Other non-current assets
 
0.2

 

Total derivatives designated as hedging instruments
 
 
 
$
1.7

 
$

 
 
 
 
 
 
 
Total asset derivatives
 
 
 
$
1.7

 
$


The fair value of outstanding derivative contracts recorded as liabilities in the accompanying consolidated balance sheets as of December 31, 2016 and 2015 was as follows:
 
 
LIABILITY DERIVATIVES
(in millions)
 
Balance Sheet Location
 
Fair Value
 
 
 
 
2016
 
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
$
0.8

 
$
0.1

Commodity contracts
 
Accrued expenses and other liabilities
 
0.1

 
2.4

Commodity contracts
 
Other long-term liabilities
 

 
0.3

Total derivatives designated as hedging instruments
 
 
 
$
0.9

 
$
2.8

 
 
 
 
 
 
 
Derivatives NOT designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
$
0.2

 
$

Commodity contracts
 
Accrued expenses and other liabilities
 

 
0.7

Commodity contracts
 
Other long-term liabilities
 

 
0.1

Total derivatives NOT designated as hedging instruments
 
 
 
$
0.2

 
$
0.8

 
 
 
 
 
 
 
Total liability derivatives
 
 
 
$
1.1

 
$
3.6


The effects of derivative instruments on the consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014 for gains or losses initially recognized in "Accumulated other comprehensive loss" ("AOCI") in the accompanying consolidated balance sheets were as follows: 
Derivatives in cash flow hedging relationships (in millions)
 
Amount of gain (loss) recognized in AOCI on derivative (effective portion, net of tax)
 
Location of gain (loss) reclassified from AOCI into income (effective portion)
 
Amount of gain (loss) reclassified from AOCI into income (effective portion)
 
 
2016
 
2015
 
2014
 
 
 
2016
 
2015
 
2014
Foreign currency exchange contracts
 
$
(0.1
)
 
$
0.3

 
$
(0.1
)
 
Cost of sales
 
$

 
$
(1.4
)
 
$
(0.9
)
Commodity contracts
 
2.7

 
(1.1
)
 
(0.5
)
 
Cost of sales
 
(1.5
)
 
(3.4
)
 
(0.3
)
Total
 
$
2.6

 
$
(0.8
)
 
$
(0.6
)
 
 
 
$
(1.5
)
 
$
(4.8
)
 
$
(1.2
)

Derivatives relationships (in millions)
 
Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
 
2016
 
2015
 
2014
 
 
Commodity contracts
 
$

 
$
0.1

 
$
0.1

 
Cost of sales
Total
 
$

 
$
0.1

 
$
0.1

 
 
Derivatives NOT designated as hedging instruments (in millions)
 
Amount of gain (loss) recognized in income on derivative
 
Location of gain (loss) recognized in income on derivative
 
 
2016
 
2015
 
2014
 
 
Foreign currency exchange contracts
 
$
(0.2
)
 
$
0.1

 
$

 
Other expense (income) — net
Commodity contracts — short-term
 
0.8

 
(0.7
)
 

 
Other expense (income) — net
Commodity contracts — long-term
 

 
(0.1
)
 

 
Other expense (income) — net
Total
 
$
0.6

 
$
(0.7
)
 
$

 
 
 
Inventories
Inventories
Inventories
The components of inventories at December 31, 2016 and 2015 are summarized as follows:
(in millions)
 
2016
 
2015
Inventories — gross:
 
 
 
 

Raw materials
 
$
68.2

 
$
70.7

Work-in-process
 
18.3

 
18.7

Finished goods
 
85.1

 
83.4

Total inventories — gross
 
171.6

 
172.8

Excess and obsolete inventory reserve
 
(22.5
)
 
(23.5
)
Net inventories at FIFO cost
 
149.1

 
149.3

Excess of FIFO costs over LIFO value
 
(3.5
)
 
(3.4
)
Inventories — net
 
$
145.6

 
$
145.9

Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment
The components of property, plant and equipment at December 31, 2016 and 2015 are summarized as follows:
(in millions)
 
2016
 
2015
Land
 
$
7.3

 
$
7.3

Building and improvements
 
91.3

 
94.3

Machinery, equipment and tooling
 
215.1

 
216.0

Furniture and fixtures
 
5.8

 
6.2

Computer hardware and software
 
52.9

 
51.2

Construction in progress
 
11.2

 
9.8

Total cost
 
383.6

 
384.8

Less accumulated depreciation
 
(274.5
)
 
(268.4
)
Property, plant and equipment — net
 
$
109.1

 
$
116.4

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
The Company has three reportable segments: Americas, Europe, Middle East and Africa ("EMEA") and APAC. The Americas segment includes the U.S., Canada and Latin America. The EMEA segment is made up of markets in Europe, Middle East and Africa, including Russia and the Commonwealth of Independent States. The APAC segment is principally comprised of markets in China, India, Singapore, Malaysia, Thailand, Philippines, Indonesia, Japan, South Korea, Australia and New Zealand. The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2016, 2015 and 2014 are as follows:
(in millions)
 
Americas
 
EMEA
 
APAC
 
Total
Gross balance as of December 31, 2014
 
$
1,172.7

 
$
208.4

 
$
7.4

 
$
1,388.5

Accumulated asset impairments
 
(312.2
)
 
(203.5
)
 

 
(515.7
)
Net balance as of December 31, 2014
 
$
860.5

 
$
4.9

 
$
7.4

 
$
872.8

 
 
 
 
 
 
 
 
 
Foreign currency impact
 

 
(0.1
)
 
(0.4
)
 
(0.5
)
Impact of acquisitions and divestitures
 
(27.9
)
 

 
1.4

 
(26.5
)
Gross balance as of December 31, 2015
 
$
1,144.8

 
$
208.3

 
$
8.4

 
$
1,361.5

Accumulated asset impairments
 
(312.2
)
 
(203.5
)
 

 
(515.7
)
Net balance as of December 31, 2015
 
$
832.6

 
$
4.8

 
$
8.4

 
$
845.8

 
 
 
 
 
 
 
 
 
Foreign currency impact
 

 
(0.1
)
 
(0.4
)
 
(0.5
)
Gross balance as of December 31, 2016
 
$
1,144.8

 
$
208.2

 
$
8.0

 
$
1,361.0

Accumulated asset impairments
 
(312.2
)
 
(203.5
)
 

 
(515.7
)
Net balance as of December 31, 2016
 
$
832.6

 
$
4.7

 
$
8.0

 
$
845.3


The Company accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, "Intangibles - Goodwill and Other." The Company performs an annual impairment test or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company tests its reporting units and indefinite-lived intangible assets using a fair-value method based on the present value of future cash flows, which involves management's judgments and assumptions about the amounts of those cash flows and the discount rates used. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill, or indefinite-lived intangible asset. The intangible asset is then subject to risk of write-down to the extent that the carrying amount exceeds the estimated fair value.
As of June 30, 2016 and 2015, the Company performed its annual impairment tests for its reporting units, which were Americas, EMEA, and APAC, as well as its indefinite-lived intangible assets, and based on those results, the fair value of each of the Company's reporting units exceeded their respective carrying values and no impairment was indicated.
The gross carrying amount and accumulated amortization of the Company's intangible assets other than goodwill are as follows as of December 31, 2016 and 2015:
 
 
2016
 
2015
(in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
Trademarks and tradenames
 
$
172.4

 
$

 
$
172.4

 
$
175.1

 
$

 
$
175.1

Customer relationships
 
415.2

 
(171.4
)
 
243.8

 
415.2

 
(150.4
)
 
264.8

Patents
 
1.6

 
(1.6
)
 

 
1.7

 
(1.6
)
 
0.1

Other intangibles
 
140.7

 
(72.5
)
 
68.2

 
143.2

 
(63.6
)
 
79.6

Total
 
$
729.9

 
$
(245.5
)
 
$
484.4

 
$
735.2

 
$
(215.6
)
 
$
519.6


Amortization expense for the years ended December 31, 2016, 2015 and 2014 was $31.2 million, $31.4 million and $31.8 million, respectively.  As of December 31, 2016, the estimated future amortization of intangible assets, other than goodwill, excluding the impact of any future acquisitions or divestitures is as follows:
(in millions)
 
 
Year ending December 31:
 
 
2017
 
$
31.2

2018
 
31.2

2019
 
30.9

2020
 
30.7

2021
 
30.7

Thereafter
 
157.3

 
 
$
312.0

Accounts Payable and Accrued Expenses and Other Liabilities
Accounts Payable and Accrued Expenses and Other Liabilities
Accounts Payable and Accrued Expenses and Other Liabilities
Accounts payable and accrued expenses and other liabilities at December 31, 2016 and 2015 are summarized as follows:
(in millions)
 
2016
 
2015
Accounts payable:
 
 
 
 
Trade accounts payable
 
$
108.4

 
$
121.7

Total accounts payable
 
$
108.4

 
$
121.7

Accrued expenses and other liabilities:
 
 
 
 
Interest payable
 
$
15.7

 
$

Income taxes payable
 
2.5

 
7.3

Employee related expenses
 
29.8

 
24.5

Restructuring expenses
 
3.3

 
16.8

Profit sharing and incentives
 
14.2

 
3.9

Accrued rebates
 
56.0

 
49.9

Deferred revenue - current
 
4.4

 
3.8

Dividend payable to MTW
 

 
10.2

Customer advances
 
7.4

 
2.9

Product liability
 
2.3

 
2.6

Miscellaneous accrued expenses
 
38.9

 
43.0

Total accrued expenses and other liabilities
 
$
174.5

 
$
164.9

Accounts Receivable Securitization
Accounts Receivable Securitization
Accounts Receivable Securitization
Prior to the Spin-Off, MFS sold accounts receivable through an accounts receivable securitization facility, ("the Prior Securitization Program"), comprised of two funding entities: Manitowoc Funding, LLC ("U.S. Seller") and Manitowoc Cayman Islands Funding Ltd. ("Cayman Seller"). The U.S. Seller historically serviced domestic entities of both the Foodservice and Crane segments of MTW and remitted all funds received directly to MTW. The Cayman Seller historically serviced solely MFS foreign entities and remitted all funds to MFS entities. The U.S. Seller remained with MTW subsequent to the Spin-Off, while the Cayman Seller was transferred to MFS subsequent to the Spin-Off. As the U.S. Seller is not directly attributable to MFS, only the receivables which were transferred to the U.S. Seller but not sold are reflected in MFS' accompanying consolidated balance sheets. A portion of the U.S. Seller's historical expenses related to bond administration fees and settlement fees was allocated to MFS. As the Cayman Seller is directly attributable to MFS, the assets, liabilities, income and expenses of the Cayman Seller are included in MFS' accompanying consolidated statements of operations and balance sheets. MFS' cost of funds under the facility used a London interbank offered rate ("LIBOR") index rate plus a 1.25% fixed spread.
On March 3, 2016, MFS entered into a new $110.0 million accounts receivable securitization program (the "2016 Securitization Facility") among the Cayman Seller, as seller, MFS, Garland Commercial Ranges Limited, Convotherm Elektrogeräte GmbH, Manitowoc Deutschland GmbH, Manitowoc Foodservice UK Limited, Manitowoc Foodservice Asia Pacific Private Limited and the other persons who may be from time to time, a party thereto, as servicers, with Wells Fargo Bank, National Association, as purchaser and agent, whereby MFS will sell certain of its domestic trade accounts receivable and certain of its non-U.S. trade accounts receivable to a wholly-owned, bankruptcy-remote, foreign special purpose entity, which in turn, will sell, convey, transfer and assign to a third-party financial institution (the "Purchaser"), all of the rights, title and interest in and to its pool of receivables. The Purchaser will receive ownership of the pool of receivables. MFS, along with certain of its subsidiaries, act as servicers of the receivables and as such administer, collect and otherwise enforce the receivables. The servicers will be compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. As servicers, they will initially receive payments made by obligors on the receivables but will be required to remit those payments in accordance with a receivables purchase agreement. The Purchaser will have no recourse for uncollectible receivables. The 2016 Securitization Facility also contains customary affirmative and negative covenants. Among other restrictions, these covenants require the Company to meet specified financial tests, which include a Consolidated Interest Coverage Ratio and a Consolidated Total Leverage Ratio that are the same as the covenant ratios required under the 2016 Credit Agreement as described in Note 12, "Debt."
Due to a short average collection cycle of less than 60 days for such accounts receivable as well as MFS' collection history, the fair value of MFS' deferred purchase price notes approximated book value. The fair value of the deferred purchase price notes recorded at December 31, 2016 and 2015 was $60.0 million and $48.4 million, respectively, and is included in "Accounts receivable, less allowances" in the accompanying consolidated balance sheets.
Trade accounts receivables sold to the Purchaser and being serviced by the Company totaled $96.7 million and $100.9 million at December 31, 2016 and 2015, respectively.
Transactions under the 2016 Securitization Facility and the Prior Securitization Program were accounted for as sales in accordance with ASC Topic 860, "Transfers and Servicing." Sales of trade receivables to the Purchaser are reflected as a reduction of accounts receivable in the accompanying consolidated balance sheets and the proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the accompanying consolidated statements of cash flows. The Company deems the interest rate risk related to the deferred purchase price notes to be de minimis, primarily due to the short average collection cycle of the related receivables (i.e., 60 days) as noted above.
Debt
Debt
Debt
Senior Secured Credit Facilities
On March 3, 2016, the Company entered into a credit agreement (the "2016 Credit Agreement") for a new senior secured revolving credit facility in an aggregate principal amount of $225.0 million (the "Revolving Facility") and a senior secured Term Loan B facility in an aggregate principal amount of $975.0 million (the "Term Loan B Facility" and, together with the Revolving Facility, the "Senior Secured Credit Facilities") with JPMorgan Chase Bank, N.A, as administrative agent and collateral agent, J.P. Morgan Securities LLC, Goldman Sachs Bank USA, HSBC Securities (USA) Inc., and Citigroup Global Markets Inc., on behalf of certain of its affiliates, as joint lead arrangers and joint bookrunners, and certain lenders, as lenders. The Revolving Facility includes (i) a $20.0 million sublimit for the issuance of letters of credit on customary terms, and (ii) a $40.0 million sublimit for swingline loans on customary terms. The Company entered into security and other agreements relating to the 2016 Credit Agreement.
Borrowings under the Senior Secured Credit Facilities bear interest at a rate per annum equal to, at the option of MFS, (i) LIBOR plus the applicable margin of 4.75% for term loans subject to a 1.00% LIBOR floor and 1.50% - 2.75% for revolving loans, based on consolidated total leverage, or (ii) an alternate base rate plus the applicable margin, which will be 1.00% lower than for LIBOR loans.
The 2016 Credit Agreement contains financial covenants including (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) Consolidated EBITDA, as defined in the 2016 Credit Agreement, to (ii) Consolidated Cash Interest Expense, and (b) a Consolidated Total Leverage Ratio, which measures the ratio of (i) Consolidated Indebtedness to (ii) Consolidated EBITDA for the most recent four fiscal quarters. The current levels of the financial ratio covenants under the Senior Secured Credit Facilities and the Company's actual ratios for each quarter ended during 2016 are set forth below:
Fiscal Quarter Ending
 
Consolidated Total Leverage Ratio Level (less than)
 
Actual Consolidated Total Leverage Ratio
 
Consolidated Interest Coverage Ratio Level (greater than)
 
Actual Consolidated Interest Coverage Ratio
March 31, 2016
 
6.25:1.00
 
5.49:1.00
 
2.00:1.00
 
5.91:1.00
June 30, 2016
 
6.25:1.00
 
5.52:1.00
 
2.00:1.00
 
3.25:1.00
September 30, 2016
 
6.00:1.00
 
5.29:1.00
 
2.25:1.00
 
3.17:1.00
December 31, 2016
 
5.75:1.00
 
5.18:1.00
 
2.25:1.00
 
3.13:1.00

Obligations of the Company under the Senior Secured Credit Facilities are jointly and severally guaranteed by certain of its existing and future direct and indirectly wholly-owned U.S. subsidiaries (but excluding (i) unrestricted subsidiaries, (ii) immaterial subsidiaries, and (iii) special purpose securitization vehicles).
There is a first priority perfected lien on substantially all of the assets and property of the Company and guarantors and proceeds therefrom excluding certain excluded assets. The liens securing the obligations of the Company under the Senior Secured Credit Facilities are pari passu.
Senior Notes
On February 18, 2016, the Company issued 9.50% Senior Notes due 2024 in an aggregate principal amount of $425.0 million (the "Senior Notes") under an indenture with Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the Company's domestic restricted subsidiaries that is a borrower or guarantor under the Senior Secured Credit Facilities. The Senior Notes and the subsidiary guarantees are unsecured, senior obligations.
The Senior Notes were initially sold to qualified institutional buyers pursuant to Rule 144A (and outside the United States in reliance on Regulation S) under the Securities Act of 1933, as amended (the "Securities Act"). In September 2016, the Company completed an exchange offer pursuant to which all of the initial Senior Notes were exchanged for new Senior Notes, the issuance of which was registered under the Securities Act.
The Senior Notes are redeemable, at the Company's option, in whole or in part from time to time, at any time prior to February 15, 2019, at a price equal to 100.0% of the principal amount thereof plus a "make-whole" premium and accrued but unpaid interest to the date of redemption. In addition, the Company may redeem the Senior Notes at its option, in whole or in part, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the 12-month period commencing on February 15 of the years set forth below:
Year
 
Percentage
2019
 
107.1
%
2020
 
104.8
%
2021
 
102.4
%
2022 and thereafter
 
100.0
%

The Company must generally offer to repurchase all of the outstanding Senior Notes upon the occurrence of certain specific change of control events at a purchase price equal to 101.0% of the principal amount of Senior Notes purchased plus accrued and unpaid interest to the date of purchase. The indenture provides for customary events of default. Generally, if an event of default occurs (subject to certain exceptions), the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
Outstanding debt at December 31, 2016 and 2015 is summarized as follows:
(in millions)
 
2016
 
2015
Revolving credit facility
 
$
63.5

 
$

Term Loan B
 
825.0

 

Senior Notes due 2024
 
425.0

 

Other
 
3.3

 
2.7

Total debt and capital leases, including current portion
 
1,316.8

 
2.7

Less current portion of capital leases
 
(1.6
)
 
(0.4
)
Less unamortized debt issuance costs
 
(36.5
)
 

Total long-term debt and capital leases
 
$
1,278.7

 
$
2.3

 
Maturities of debt, excluding capital leases, are as follows as of December 31, 2016:
(in millions)
 
Year ending December 31:
 
2017
$

2018

2019

2020

2021
63.5

Thereafter
1,250.0

 
$
1,313.5


As of December 31, 2016, the Company had outstanding $3.3 million of other indebtedness that has a weighted-average interest rate for the year ended December 31, 2016 of approximately 4.14% per annum.
As of December 31, 2016, the Company had $63.5 million of borrowings outstanding under the Revolving Facility. During the year ended December 31, 2016, the highest daily borrowing was $91.0 million and the average borrowing was $46.8 million, while the average interest rate was 2.83% per annum. The interest rate fluctuates based upon LIBOR or a Prime rate plus a spread, which is based upon the Consolidated Total Leverage Ratio of the Company. As of December 31, 2016, the spreads for LIBOR and Prime borrowings were 2.50% and 1.50%, respectively, given the Company's effective Consolidated Total Leverage Ratio for this period.

As of December 31, 2016, the Company was in compliance with all affirmative and negative covenants in its debt instruments, inclusive of the financial covenants pertaining to the Senior Secured Credit Facilities and the Senior Notes. Based upon management's current plans and outlook, management believes the Company will be able to comply with these covenants during the subsequent 12 months. As of December 31, 2016, the Company's Consolidated Total Leverage Ratio was 5.18:1.00, under the maximum ratio of 5.75:1.00, and its Consolidated Interest Coverage Ratio was 3.13:1.00, above the minimum ratio of 2.25:1.00.
Income Taxes
Income Taxes
Income Taxes
MFS, as a stand-alone entity commencing with the Spin-Off, files U.S. federal and state tax returns on its own behalf. The responsibility for current income tax liabilities of U.S. federal and state combined tax filings were deemed to settle immediately with MTW paying entities effective with the Spin-Off in the respective jurisdictions, whereas state tax returns for certain separate filing MFS entities were filed by MFS for periods prior to and after the Spin-Off. Cash tax payments commencing with the Spin-Off for the estimated liability are the actual cash taxes paid to the respective tax authorities in the jurisdictions wherever applicable.

Prior to the Spin-Off, the operations of MFS were generally included in the consolidated tax returns filed by the respective MTW entities, with the related income tax expense and deferred income taxes calculated on separate return bases in the accompanying consolidated financial statements. As a result, the effective tax rate and deferred income taxes of MFS for 2016 may differ from those in historical periods.

"Earnings before income taxes" in the accompanying consolidated statements of operations is comprised of the following for the years ended December 31, 2016, 2015 and 2014:
(in millions)
 
2016
 
2015
 
2014
Domestic
 
$
30.5

 
$
121.3

 
$
121.8

Foreign
 
74.3

 
75.1

 
63.9

Total
 
$
104.8

 
$
196.4

 
$
185.7


"Income taxes" in the accompanying consolidated statements of operations is comprised of the following for the years ended December 31, 2016, 2015 and 2014:
(in millions)
 
2016
 
2015
 
2014
Current:
 
 

 
 

 
 

Federal and state
 
$
15.7

 
$
51.1

 
$
28.3

Foreign
 
19.5

 
18.2

 
15.1

Total current expense
 
35.2

 
69.3

 
43.4

Deferred:
 
 
 
 
 
 
Federal and state
 
(15.5
)
 
(27.9
)
 
(12.0
)
Foreign
 
5.6

 
(2.1
)
 
(5.5
)
Total deferred expense
 
(9.9
)
 
(30.0
)
 
(17.5
)
Income taxes
 
$
25.3

 
$
39.3

 
$
25.9



A reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate is as follows for the years ended December 31, 2016, 2015 and 2014:
 
 
2016
 
2015
 
2014
Federal income tax at statutory rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income provision
 
1.5

 
1.4

 
1.4

Manufacturing and research incentives
 
(1.9
)
 
(1.7
)
 
(1.7
)
Taxes on foreign income which differ from the U.S. statutory rate
 
(8.1
)
 
(3.9
)
 
(2.4
)
Adjustments for unrecognized tax benefits
 
(1.5
)
 
0.1

 
4.3

Adjustments for valuation allowances
 
2.5

 
(13.8
)
 
21.5

Capital loss generation
 

 

 
(41.4
)
Business acquisitions and divestitures
 

 
4.1

 

Out of period adjustments
 
(2.8
)
 

 

Other items
 
(0.6
)
 
(1.2
)
 
(2.8
)
Effective tax rate
 
24.1
 %
 
20.0
 %
 
13.9
 %

During 2016, the Company's effective tax rate was 24.1%, compared to the 2015 effective tax rate of 20.0%. The change was due to nonrecurring 2015 items and a change in the mix of earnings in jurisdictions without a valuation allowance. Included in the 2016 tax provision is a $2.9 million benefit for out-of-period balance sheet adjustments related to the Spin-Off. The Company does not believe these adjustments are material to the accompanying consolidated financial statements for 2016 or its comparative annual or quarterly financial statements.
Domestic earnings before income taxes in 2016 represent 29.1% of total earnings and a favorable 8.1% effective tax rate impact for lower tax rates in foreign jurisdictions, whereas 2015 domestic earnings represent 61.8% of total earnings and a 3.9% effective tax rate benefit for lower foreign tax rates The ratio of domestic earnings before income taxes to total earnings in 2014 is 65.6%, with a related effective tax rate benefit of 2.4% for lower foreign tax rates. The 2016, 2015 and 2014 effective tax rates were favorably impacted by income earned in jurisdictions, primarily in Canada and China, where the statutory rates are approximately 25%.
The 2015 tax provision benefited by $17.8 million related to the divestiture of Kysor Panel Systems business resulting in a favorable impact to the effective tax rate. The benefit was primarily due to the write-off of $13.8 million of an unamortized deferred tax liability recorded in purchase accounting and use of a capital loss carryforward.
In the third quarter of 2014, MFS elected to treat Enodis Holdings Ltd., MFS’ UK holding company subsidiary, as a partnership for U.S. federal income tax purposes. As a result of this change in tax classification, MFS realized a $25.6 million capital loss tax benefit. This transaction resulted in an effective tax rate benefit of 13.9% unique to 2014.

Deferred income taxes are provided for the effects of temporary differences between the assets and liabilities recognized for financial reporting and tax reporting. These temporary differences result in taxable or deductible amounts in future years.

Significant components of the Company’s non-current deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:
(in millions)
 
2016
 
2015
Non-current deferred tax assets (liabilities):
 
 
 
 
Inventories
 
$
7.2

 
$
7.6

Accounts receivable
 
1.7

 
1.2

Property, plant and equipment
 
(2.7
)
 
(2.8
)
Intangible assets
 
(190.8
)
 
(218.9
)
Deferred employee benefits
 
19.2

 
15.7

Product warranty reserves
 
13.3

 
14.4

Product liability reserves
 
0.9

 
1.0

Loss carryforwards
 
43.8

 
84.9

Deferred revenue
 
1.3

 
1.1

Other
 
35.4

 
16.9

Non-current deferred tax liabilities
 
(70.7
)
 
(78.9
)
Less valuation allowance
 
(59.9
)
 
(80.1
)
Net non-current deferred tax liabilities
 
$
(130.6
)
 
$
(159.0
)


Current and long-term tax assets and liabilities included in the accompanying consolidated balance sheets is comprised of the following as of December 31, 2016 and 2015:
(in millions)
 
2016
 
2015
Income taxes receivable, included in prepaids and other current assets
 
$
2.9

 
$
2.7

Deferred tax asset, included in other non-current assets
 
$
7.2

 
$
8.9

Income taxes payable, included in accrued expenses and other liabilities
 
$
(2.5
)
 
$
(7.3
)
Deferred income tax liability
 
$
(137.8
)
 
$
(167.9
)

Earnings associated with the investments in the Company’s foreign subsidiaries are considered to be indefinitely reinvested outside of the U.S. Therefore, a U.S. provision for income taxes on those earnings or translation adjustments has not been recorded, as permitted by criterion outlined in ASC 740 “Income Taxes.” Determination of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates. As of December 31, 2016, approximately $57.5 million of the $60.2 million of cash and cash equivalents, including restricted cash, on the consolidated balance sheet was held by foreign entities.

As of December 31, 2016, the Company has approximately $178.2 million of pre-tax foreign loss carryforwards, which are available to reduce future foreign taxable income.  Substantially all of the foreign loss carryforwards are not subject to any time restrictions on their future use. The changes in the loss carryforwards and related valuation allowance from 2015 are primarily related to the group restructuring in the foreign jurisdictions that occurred in conjunction with the Spin-Off. The Company also has approximately $63.3 million of pre-tax U.S. capital loss carryforwards which expire in 2019 and are offset by a valuation allowance and an unrecognized tax benefit.
As of December 31, 2016, the Company determined that a total pre-tax valuation allowance of $167.2 million was necessary to reduce foreign net operating loss carryforwards in the United Kingdom, and certain entities in Singapore and India, where it was more likely than not that some portion or all of such deferred tax assets will not be realized. 

The Company will continue to periodically evaluate its valuation allowance requirements in light of changing facts and circumstances, and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible that the Company will either add to, or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax asset valuation allowances will be reflected in the current operations through the Company’s income tax provision, and could have a material effect on operating results.

A reconciliation of the Company's unrecognized tax benefits is as follows for the years ended December 31, 2016, 2015 and 2014:
(in millions)
 
2016
 
2015
 
2014
Balance at beginning of year
 
$
16.6

 
$
16.6

 
$
7.8

Additions based on tax positions related to the current year
 
1.8

 
0.2

 
14.1

Reductions based on settlements with taxing authorities
 

 

 
(2.8
)
Reductions for equity adjustment
 
(4.3
)
 

 

Reductions for lapse of statute
 
(1.6
)
 
(0.2
)
 
(2.5
)
Balance at end of year
 
$
12.5

 
$
16.6

 
$
16.6



The Company recognizes interest and penalties related to tax liabilities as a part of income tax expense. As of December 31, 2016 and 2015, the Company has accrued interest and penalties of $0.1 million and $0.9 million, respectively. The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $11.9 million.

During the next twelve months, it is reasonably possible that federal, state and foreign tax resolutions could change unrecognized tax benefits and income tax expense in the range of $0.1 million to $0.5 million.

MTW has filed tax returns on behalf of MFS in the U.S. and various state and foreign jurisdictions through tax year 2015. MFS' separate state tax returns for the 2012 through 2016 tax years generally remain subject to examination by the U.S. and various state authorities, and tax years 2012 through 2016 remain subject to examination in Canada and Germany. Tax years 2007 through 2016 remain subject to examination in China.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of December 31, 2016, the Company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows.
Other Expense (Income) - Net
Other Expense (Income) - Net
Other Expense (Income) — Net

The components of "Other expense (income) — net" in the accompanying consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014 are summarized as follows:
(in millions)
 
2016
 
2015
 
2014
Gain on sale of Kysor Panel Systems (1)
 
$

 
$
(9.9
)
 
$

Gain on sale of investment property
 

 
(5.4
)
 

Gain on acquisition of Thailand joint venture (2)
 

 
(4.9
)
 

Amortization of deferred financing fees
 
4.8

 

 

Other (3)
 
4.3

 
(1.9
)
 
2.1

Other expense (income) — net
 
$
9.1

 
$
(22.1
)
 
$
2.1

 
 
 
 
 
 
 
(1) See Note 4, "Divestitures" for further discussion on the sale of Kysor Panel Systems.
(2) See Note 3, "Acquisitions" for further discussion on the acquisition of the Thailand joint venture.
(3) For the year ended December 31, 2014, $1.1 million of other expense relates to a pension obligation settled by the Company on a previously disposed entity as described in Note 4, "Divestitures." Excluding this item, other expense (income) — net consists primarily of foreign currency gains and losses.
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